The English court confirms the factors to be taken into account when assessing a loss.
A recent first instance decision has reinforced the importance of carefully quantifying a loss before bringing a claim for breach of contract.
In Omak Maritime Ltd v Mamola Challenger Shipping Co (2010) it was held that, in a claim for recovery of wasted expenditure following a breach of contract, any benefit obtained as a result of the breach (i.e. money recovered by way of mitigation, e.g. in substitute contracts) must also be taken into account when assessing the claimant's loss.
The initial claim was brought by owners of a vessel that had been time-chartered for five years. In accordance with the charterparty and prior to delivery, owners made modifications to the vessel. Unfortunately charterers were unable to secure a sub-charter (which was also a requirement of the contract). Owners accepted charterers' repudiatory breach.
Owners were able, subsequently, to secure a series of fixtures which not only exceeded the original charterparty rate, but provided enough profit to cover the costs incurred when modifying the vessel.
Despite this, owners sought to recover their costs and brought a claim against charterers for the expenditure wasted by the modifications. They asserted that, for a breach of contract claim which seeks to recover wasted costs, the profit received from the substitute employment of the vessel should not be taken into account. Thus, owners sought to distinguish their claim for damages brought on a "reliance" basis (i.e. aiming to be put in the position as if the contract had never been made) from the usual damages claim for "expectation" loss (i.e. the benefit or profit the claimant would have received had the contract been performed).
On appeal, Teare J held that, irrespective of how the claim for damages is framed, the court must follow the fundamental principle laid down in Robinson v Harman (1848), which requires the court to compare the claimant's actual position to what it would have been had the contract been performed. In making this comparison, the court is required to set-off benefits and profits received against the loss incurred. To do otherwise would be to put the claimant in a better position than if the contract had been performed or to compensate the claimant for his own bad bargain.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
